Debt restructuring discussions: African countries urged to negotiate as bloc
The Executive Director of the International Development Economics Associates (IDEAs), Charles Abugre, has urged African countries facing debt crisis to come together in their debt restructuring negotiations.
Advertisement
He said debt negotiations were about power relations and the continent was, therefore, better off coming together as one bloc in that endeavour
“Our current crop of creditors, especially the commercial ones, are organised as cartels. Shouldn’t African/developing countries be similarly organised?” he asked at the opening of the three-day conference on the African Debt Crisis and International Financial Architecture in Accra.
The African continent is currently faced with a debt crisis, with some countries defaulting on their loan repayments while some opt for a debt restructuring.
Data from the International Monetary Fund in 2023 indicated that ten countries were in debt distress, with nine of them from Africa. The fund also indicated that over half of low-income African countries were either potentially or actually experiencing difficulties in serving their debts.
This debt crisis has led to the closure of the international capital markets to some African countries, including Ghana.
In many heavily indebted nations, debt restructuring has become necessary to bring debt burdens back to sustainable levels and limit the negative impact of greater debt servicing on what is already a fragile socioeconomic environment.
Countries like Ghana, Ethiopia, Zambia and Chad have all applied for debt restructuring under the Common Framework for debt treatment.
Case of Ghana
In Ghana, the country is currently engaging both its bilateral and external commercial creditors as it seeks to restructure debts of about $20 billion.
The country has been able to reach an agreement with the Bilateral Official Creditors Committee (OCC), co-chaired by France and China, to restructure bilateral debts of about $5.4 billion, with an MoU expected to be signed soon.
The country is also engaging with investors in its Eurobonds as it seeks to restructure commercial debts of about $14 billion, out of which $13 billion are in Eurobonds.
Two bondholder groups have been constituted in this regard, as the government continues to engage them.
Debt reduction
Mr Abugre noted that debt restructuring must lead to debt reduction, and African countries must put in place measures and instruments to achieve this.
He said the African continent was currently debt distressed, with some countries defaulting or on the verge of defaulting on their external debt; or are in the middle of, queuing up for or taking ridiculous fiscal measures that punish the working class and the poor.
“They are also simultaneously facing domestic debt pressures that are rising at the same rate as external debt, and in some cases have the same characteristics as external debt when local currency debt instruments are open to non-resident holders as Ghana has done.
“This is barely 20 years since the Multilateral Debt Relief programme came to an end. This country is perhaps among the worst of them, having defaulted on its external debt, cut out of the capital markets and now finds itself in the middle of one of the most austere debt restructuring programmes ever seen on the continent,” he stated.
“But how did Ghana, Zambia and all others come to this, and why did they not sustain the low debt levels after the debt restructuring of the late 90s and early 2000?” he asked.
“If you ask ordinary Ghanaians how the country came to be so broke, unable to pay its loans, the answer is resoundingly one thing - corruption.
“The view is so pervasive and trust is so low that a people, who in the past staunchly opposed IMF programmes, now see the IMF not simply as a saviour of our economy but a welcome instrument to discipline an unruly government,” he stated.
He said this sentiment was pervasive across the continent, adding that the importance of good political and bureaucratic leadership definitely could not be underestimated.
Yield hungry investors
In his keynote address, a research professor at the Wits School of Governance at the University of the Witwatersrand, Professor Adebayo Olukoshi, said the continent has been lured into this current debt crisis by what he described as yield-hungry investors.
He said such investors were fueling a rise in loans, either tapped outrightly for consumption or borrowed for development but diverted into recurrent spending, leaving citizens exposed.
“In cases of debt distress, preference has been on how to save creditors. No matter its packaging and the conditionalities attached to it, it is clear that at the end of the tunnel, it is about maintaining the world order.
“China is not in Africa to play Father Christmas. China is in Africa for business. But it is taking policymakers long to notice this. If we didn’t learn our lessons from the West, then we are walking blindfolded,” he stated.